Emerging concept of income presentation

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Jack E. Kiger
ASSOCIATE PROFESSOR OF ACCOUNTING
Jan R. Williams PROFESSOR OF ACCOUNTING THE UNIVERSITY OF TENNESSEE
AN EMERGING CONCEPT OF INCOME PRESENTATION
Abstract: This article reviews the development of income presentation found in the authoritative accounting pronouncements since 1941. During this period, with-in the historical cost reporting model for presentation of income, emphasis has shifted from the ail-inclusive concept of net income and the current operating per-formance concept to a hybrid approach which substantially incorporates the two concepts.
Income measurement presents an imprecise evaluation of the re-sults of business activity. Despite its limitations, the importance of income measurement is well established in the financial accounting literature.1 Two extreme positions are apparent in a study of the alternative methods of determining and presenting income within the historical cost model. These are commonly identified as the all-inclusive and the current operating performance concepts.
Advocates of the all-inclusive approach to income determination and presentation have defined net income
. . . according to a strict proprietary concept by which it is presumed to be determined by the inclusion of all items affecting net increase in proprietorship during the period except dividend distributions and capital transactions2
On the other hand, advocates of the current operating perfor-mance concept of income placed
. . . principal emphasis upon the relationship of items to the operations, and to the year, excluding from determina-tion of net income any material extraordinary items which are not so related or which, if included, would impair the significance of net income so that misleading inferences might be drawn therefrom.3